What Legalized Marijuana Could Mean for California’s Real Estate

What Legalized Marijuana Could Mean for California’s Real Estate

If you were one of the first customers at Mankind Cooperative in San Diego on January 1st, you received a t-shirt featuring a picture of astronauts on the moon along with the phrase, ‘A giant leap for mankind’ to go with your recreational marijuana purchase.

Everyone in California was celebrating the legalization of pot. But it’s not just good business for those who wish to get high. Before marijuana was legalized in California, other states saw a huge boost in tax revenue.

When Californians voted in 2016 to legalize recreational marijuana and the law went into effect on New Year’s Day, it created one of the largest legal pot markets in the entire United States according to a report in the Ventura County Star. Legalization will generate millions of dollars in taxes to help swing the center of gravity for five other states where pot had already been legalized as well as to change law enforcement practices.

However, there have been a few snags here and there. Quite a few regulations are still being sorted out in several California cities. One such city is San Jose, where the sale of recreational marijuana is banned by their local government. Other cities are putting regulations in place that will not allow cannabis businesses to be built close to schools.

Residential and commercial real estate AND apartment prices continue to rise despite the legalization of marijuana, especially in industrial areas. Warehousing has become very tempting for those who want to open their own business. A real estate lawyer in Monterey County, Aaron Johnson, has seen prices for undeveloped land rise from $50,000 to $300,000 an acre.

So where exactly will the money go?

In Nevada, revenue generated from a 15% tax on wholesalers is being put towards the state’s education budget, while a 10% tax on retail sales is being put into a rainy day fund for the state according to FORTUNE Magazine. A majority of Oregon’s revenue is going towards the treatment of addictions, law enforcement, and education. In Colorado, which was the first state to legalize marijuana, over $500 million in tax revenue has been generated since January 2014 coming from a 2.9% sales tax on marijuana sales and a 15% excise tax and 10% special tax for sales of weed for adult use. The taxes are going towards paying for new infrastructure for city budgets, roads, and schools.

Realtor.com believes that the legalization of marijuana could create billions of dollars in additional cannabis tax revenue and over 100,000 new jobs. California is the sixth largest economy in the entire world and the most populous state in the U.S.

It’s uncertain what will happen with pot revenues in California. So far, there hasn’t been any indication that it would be used for general operations of schools or local governments according to The Cannabist. However, approximately $1 billion in new tax revenue would be funneled towards specific new or expanded programs such as drug use treatment and prevention, law enforcement, helping youth who are at-risk, research, and environmental clean-up.

Who will come out on top?

Landlords who have warehouses, factories, or rental property in California near the Las Vegas Nevada Border, as well as other states where marijuana is legalized, will come out on top in this case.

Warehouses and factories in Portland, ME are being used to grow marijuana plants instead of storing and producing parts for tires, steel beams, and model homes, according to the New York Times. Many factories sat empty and were not being used. A commercial broker who works for Keller Williams Realty in Monterey stated that over 20 major transactions worth around $100 million have closed with prices on the rise.

In 2016, Realty Times wrote an article about the impact of legalized marijuana and how that would affect the real estate market in Denver which has been marked more recently by all-cash purchases, diminishing inventory, and skyrocketing prices.

BeSmartee states that Denver is a widely-used model when it comes to taking a look at the relationship between real estate and legalized marijuana.

The housing market in Colorado has been on the uptick for nearly three years, which many believe is because of the legalization of marijuana. Denver’s housing market has become one of the hottest in the country as home prices have increased by double digits. Outstanding inventory for homes has fallen significantly. There have been multiple offers for many homes which have not only driven up the price of them but have also led to bidding wars. The median sales prices for Denver’s housing market have increased by 11% ($32,500) within the last year alone. Likewise, the average price per square footage has increased from $276 to $308.

There is one disturbing caveat about this trend. If home prices continue to rise exponentially, many properties will become out-of-reach for a number of middle-income families. Housing prices in California are already very high which puts a damper on one’s dreams of relocating to purchase legalized marijuana.

Location is another factor to take into consideration. In Colorado, the close proximity of marijuana dispensaries to residential areas has not been positive. Some Colorado homes that are located within a half mile of a marijuana business tend to have lower property values than homes that are farther out. But that doesn’t mean all marijuana dispensaries drive crime rates up are a dampener for home values according to Realtor.com. The least desirable homes are those in neighborhoods that include grow houses. These houses are typically discounted by 8.4%. But retail shops including those with sophisticated pot boutiques have not experienced any negative impacts.